Summary
SCG’s 4QFY24 core net profit (CNP) surged by 35.9% qoq and 103.1% yoy to RM25.2m, bringing FY24 CNP to RM72.3m (+145.7% yoy), which exceeded both our and consensus estimates at 105.4% and 131.8%, respectively. The key variance is largely attributed to better-than-expected margins in the power segment.
We believe there is overreaction of the stock price correction as of late as SCG’s fundamentals remain strong, supported by a diversified revenue stream; c.25-35% from long-term contract, 10% from export market, and the remainder from purchase orders across various sectors. Currently the Group’s total orders on hand stand at RM1.3bn, representing 1.0x FY24 revenue.
Post-adjustments to earnings, we have revised our target price to RM1.71, while maintaining an unchanged 18x FY26F PER, based on a fully diluted EPS of 9.5 sen, along with an assigned three-star ESG rating. Reiterate BUY.
Exceed expectations. SCG reported a 4QFY24 CNP of RM25.2m (+35.9% qoq, +103.1% yoy), bringing the 12MFY24 total to RM72.3m, which exceeded both our and consensus estimates at 105.4% and 131.8%, respectively. The key variance largely from better-than-expected margin in power segment. The Group proposed a final dividend of 0.85sen/share (4QFY23: 0.75sen/share).
QoQ. 4QFY24 CNP grew by 35.9%, largely due to (i) better product mix in power cables and wires (GP margin +3.3%-pts qoq), (i) lower plastic compound costs, (iii) reduction in administrative cost (-75.1%) and (iv) lower effective tax rates of 17.2% (vs 24.2% in 3QFY24). Better product mix, cost optimisation and lower tax rate led to improvement in CNP margin by 2.7%-pts to 7.5%.
YoY/YTD. CNP more than doubled (+103.1% yoy, +145.7% ytd), thanks to significant improvement in gross profit in the power segment (+70.7 yoy, +96.5% ytd) driven by higher sales volume and ASP (segmental revenue +17.7% yoy, +34.4% ytd), lower plastic compound costs, better product mix and economies of scales from volume growth. Consequently, FY24 CNP margin surged to 5.4%, up from 2.8% in FY23.
Outlook. With plant capacity expansion (+11% from 2024 capacity to 51,980 km/pa) in existing facility in Kedah, which is expected to come onstream gradually, we believe SCG is well-positioned to capture more order demand coming from nation grid development, RE development, construction boom, as growing traction in the U.S. market. In addition to this, 1,600 sqm of HV Milliken cable which expected to be certified by TNB in 3QFY25 is expected to drive margin expansion, with a product mix increasingly skewed toward higher-margin products. Currently the Group’s total orders on hand stand at RM1.3bn, with >40% coming from purchase orders and the remainder from the order book, representing 1.0x FY24 revenue.
Earnings revision. We have revised our FY25F and FY26F earnings upward by 13.4% and 4.6%, respectively, after factoring in the following: (i) improved margins in power cables segment due to favorable product mix driven by higher demand for aluminum cables, and (ii) increased export sales, supported by continued traction from US markets. We also introduce our FY27F core net profit forecast of RM124.2m.
Valuation & Recommendation. Correspondingly, we lift our TP to RM1.71 (from RM1.63), while keeping an unchanged 18x FY26F PER, based on fully diluted EPS of 9.5 sen, along with an assigned three-star ESG rating. Reiterate BUY. In the past two months, SCG share price suffered a significant correction since the previous Biden Administration’s proposed AI chips restriction and then emergence of DeepSeek. We believe there is overreaction of the stock price as SCG’s fundamentals remain strong, supported by a diversified revenue stream; c.25-35% from long-term contract, 10% from export market, and the remainder from purchase orders across various sectors. We believe recent share price weakness presents an opportunity for investors to accumulate on weakness. We continue to like SCG for its (i) role as a proxy for Malaysia’s growing power demand, (ii) increasing demand for HV power cables, and (iii) position as one of the few vendors supplying US distributors.
Risk. Heavy reliance on government initiatives. Inability to secure new contracts. Spike in raw material costs such as copper and steel.
Disclaimer
The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.
Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.
Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.
| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.451181 | 4.487974 |
| EUR | 4.938764 | 4.946105 |
| CNY | 0.607808 | 0.608296 |
| HKD | 0.573694 | 0.577958 |
| SGD | 3.324704 | 3.349527 |